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Dementia Tax

“Details Will Be Crucial” in Conservative Party’s Social Care Plans

The most headline-grabbing aspect of the recent Conservative Party manifesto launch was the proposal that people who need social care at home should pay for such support until their total assets reach a floor of £100,000.

Critics argued that the so-called ‘dementia tax’ would particularly affect families where parents develop long-term health conditions which mean that social care in their own homes is essential. This in turn would also reduce the inheritance received by that person’s offspring.

But the Conservatives had to think again after a disappointing general election which resulted in a hung parliament. The government has now left out this and other key manifesto pledges in its official legislative agenda for parliament.

Yet the idea hasn't been completely ruled out, and the government has now announced a major consultation to reform the tricky issue of social care funding. So what should policymakers bear in mind when trying to reform care funding?

How to solve a problem like care funding

The controversial proposals in the Conservative Manifesto effectively brought the home into the liability net, with care fees clawed back after the owner dies. There was even an extra pledge that nobody has to sell in their lifetime. Previously, the home was disregarded in assessing a contribution to care costs while it was still occupied.

Following a media and public outcry, the Prime Minister was forced to 'clarify' that there would also be a cap on the absolute amount anyone would have to contribute – and would consult on the amount.

The surprise outcome of the general election means the government will have to tread carefully. Thorny subjects like social care and Britain's demographic time bomb can be more easily tackled by ruling parties with big majorities. Theresa May's thinner mandate will make it harder to make decisions that could be potentially unpopular, both within her party and among the general public.

Even at the best of times, passing laws to improve Britain's social care provision may not be enough. The 2015 Care Act was meant to implement a £72,000 cap on social care costs, as recommended by a special government commission chaired by Andrew Dilnot. However, the specific provisions on a cap, while enacted, were never brought into force . It shows that such legislation needs strong backing, from both the public and across the political spectrum, to have real teeth. Current conditions are hardly ideal for the Conservatives to stamp their authority on this area.

It's time to start the debate

Kelly Greig, partner at Irwin Mitchell Private Wealth, says social funding care is only going to become a bigger issue in years to come, as medical progress allows more people to live longer. "Many will be relieved that the so-called “Dementia Tax” policy from the Tory Manifesto has been dropped but it is important that the consultation announced in the Queens Speech helps to bring about a solution as soon as possible.”

Simply put, planning for later life is something that we will all have to get used to, says Kelly. "It is not enough to simply get a will and a pension anymore. Care fees, inheritance tax, power of attorney and mental capacity are all issues which need to be given some thought and discussed amongst family members. Reforming the social care funding models is something which may kick-start those conversations.”

Existing legislation won't cut it

Kelly says the devil will be in the detail of any future legislation on the issue, but believes something needs to be done, as the existing care cap proposed by Dilnot is insufficient.

She explains: “The issue of addressing social care costs obviously has a chequered recent history, with proposals in the Dilnot Report suggesting a theoretical cap of £72,000 which was arguably of limited value. The cap did not include a “board and lodging” element and was limited to the amount payable by local authorities, typically some way below the full rate for nursing care.

“Taking everything into account, it was my estimate that a person in a reasonable West Sussex nursing home would need to be there four and a half years before they reached that cap. As many people do not tend to live that long in care, it is reasonable to say such proposals would not help many."

Would a floor help?

Kelly argues that the now-scrapped proposal of a £100,000 funding "floor" would have been better for those with lower-value properties in the north of the country compared to traditional Tory voters based further south, but that it raised too many questions. These include whether it applied to individuals or couples, whether it took into account assets placed in a trust and whether the value of a property would be factored in even if a spouse or partner was living there.

“There are other issues too. For example, at the moment you can apply to a local authority for help when you reach £23,250, but are unable to use capital to ‘top up’ fees from a council if they are not enough to meet the full cost. How would this work under a new regime?

“If any floor is introduced in future legislation, there would also need to be clarity on whether people try to avoid this by making gifts. How would that be addressed and would rules similar to those at present be in place? The current standpoint is that trusts tend to be protected unless they have been set up to enhance a claim for care fee support.

“Spouses and cohabitees often leave half of a property in trust for the other to have life interest or use the property. Are we to assume that the share would be disregarded even if the other’s is attacked down to the floor level?”

Other issues to weigh up

Other details that need considering include the effect of two spouses each owning half a property, and whether it makes any difference if half of the property is shared in trust. A trust set up by your late spouse, giving you an entitlement only to income, has now become an entirely legitimate estate planning method. The capital can be used for “top up” of fees payable by the local authority, but only the income is taken into account in assessing the contribution made. But will the trust route be protected under any reforms?

A more open market in wills can also present problems for care funding. Many will writers who are unregulated or only in voluntary schemes can currently make unjustified claims about what can be done to protect property from care fees. This problem is unlikely to go away – so how will the government prevent this turning into a major scandal?

Up in the air

One thing's for sure; rising longevity is only going to make the issue of social care funding more important in future.

Kelly says: “There will be plenty of thought required on this issue before any legislation can be brought forward. This policy is a major step which could have a significant impact in a number of ways.

“For instance, depending upon the answers to the above issues, this may cut across the additional relief (RNRB) for inheritance tax which encourages giving property away to children.

“Ultimately, anything which relates to the hugely emotive issues of providing for your loved ones and social care is likely to cause much discussion and debate.”

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